Have you ever heard of this kind of 'forbearance'?

Question

I have a loan question from a past client...(I am an agent).

They tell me today that someone approached them (a company from LA), that if they purposely not paying their mortgage for 3 months, the company can negotiate a better term and rate for them with their bank, so they can have lower rate (like 3%) and better terms....and they charge like 10k when it is done....

So...this is kinda of a 'forbearance',....however, the starting point is that they are PURPOSELY not paying mortgage instead of unable to.

Have you every heard anything like this ? Legal? or just a grey area and that company is just being creative of making money.... ?

V.G Jason · Answer

Why even bother entertaining this type of nonsense? It's fraudulent, you grab a quick buck to lose everything you have or had. The juice is not worth the squeeze. Just play within the rules.

Scott E. · Answer

When I worked at the bank in default prevention we processed modifications, deferments, and forbearances for clients. We're talking hundreds of thousands of clients. This was back around 2011-2013 though when these programs were much more common. Back then there were a couple of these types of companies who would "assist" clients through the process. Not a bad service considering it was quite confusing and overwhelming for a lot of borrowers to navigate a loan modification or forbearance. I have no experience with this ocean park financials group. Never even heard of them. I googled them and they surprisingly have half decent reviews link. But I'd take that with a grain of salt. All that being said, the others in this thread are right. No 3rd party company should be advising a borrower to stop making their payments in order to get approved for one of these products. IF the borrower was already delinquent and they reached out to this company for help, the company only then should hold their hand throughout the forbearance or modification process. If your client is having a hard time making their mortgage payments, I recommend they reach out to their loan servicer and ask for assistance. Anything a 3rd party can "offer" will also be available directly through the servicer.

Jay Hinrichs · Answer

I remember this well in Vegas during those time frames and in the markets that were foreclosure clusters.. bad actors advocating this.. could it work maybe .. does it trash owners credit for sure.

Jane Ho · Answer

Love your rule of thumb!!!!

Chris Seveney · Answer

@Jane HoDuring covid there were loan forbearances being modified down to 2%. Those days are gone so they are probably using that as a scam to say “see we did this” Most loans are securitized and in pools and investors are buying those securities and servicers can be on the hook.As a rule of thumbAny person who ever tells you to intentionally break a contract is not someone you should associate with

Don Konipol · Answer

EVERYTHING we do has consequences, sometimes not readily apparent and often many years later…. Having trouble financially making mortgage payments CAN lead to a lender willing to do a modification but with three caveats1- The lender will check that the borrower truly CAN’T under their present financial circumstances, reasonably make the mortgage payments. They’ll want to see a loss of income, no assets to draw from, deteriorating financial condition. They’re checking for just this thing, people who are able to make the payments but don’t in hopes of a modification.2- If the lender does agree to a mod it’s usually temporarily lowering monthly payments while adding the difference to the principal balance. This may result in negative tax consequences for the borrower as paying less interest means less deductible expense.3- Any kind of personal loan modification will find its way onto the borrower’s credit report, and hence result in a significantly lower credit score. The borrower will likely be rejected for a loan they would have otherwise qualified for, and for lower LTV loan requests will pay a significantly higher interest rate. So, even in the very remote circumstance where the borrower successfully is able to lower the interest rate from 6.5% to say 4.5% and no “backend” differential; the next time they sell the house and apply for a new mortgage they will likely be rejected for the low down payment option and be required to put down 25% and pay 2 points over the lowest market rate. During times of massive dislocation, such as the property crash of 2008 or Covid 2020 so many people were defaulting that if you pulled this you often got lost in the masses, therefore were able to pull it off with no negative consequences to your credit; however, in “normal” times the consequences are real. There is no “I’ll try it and see if it works”; once your 3 months behind on mortgage payments it’s a red flag on your credit history/credit report, your credit score takes a hit for EIGHT years minimum; you have more trouble obtaining new loans;, when you are able to obtain new loans it’s at higher interest rates, credit card issuers no longer send you the opportunities sent to A credit like 2% cash advances for first 18 months so you can’t take advantage of that, and finally with less financial status you become less interesting to people as a romantic partner!

Jane Ho · Answer

Thanks all. The company is call ocean park financials....I googled them....didn't find any useful info. my client bought this house with me this Jan, with a 6.5% rate and they want low....I mean LOWER rate....I feel it is totally fishy and like a scam but I dont process loans so I don't have a firm answer for them. Thank you all for the info I will tell them don't do it :)

Bill B. · Answer

You’d have to have zero or near zero equity, otherwise they foreclose, charge a bunch of interest and penalties, and take it out of the sale. You get to be homeless or a renter with bad credit. Seems like the kind of “company” CA would have laws against, taking advantage of the stupid & poor. Ps. I bet they didn’t even ask what the current rate was when they said they could lower it. It obviously couldn’t be a recent mortgage or they wouldn’t be able to adjust the term and they’re promising to make both better.

Jake Andronico · Answer

@Jane HoThis sounds extremely bad... have not heard of anything like this but it sounds like somebody trying to make a business off of a one-off experience that shouldn't be done or replicated. Sad to hear, and so many red flags. I hope your past clients understand the risks. I respect you for reaching out to the forums and asking.